Market trends in California support compact, mixed-use neighborhoods — and such neighborhoods would help the state to meet greenhouse-reduction targets.

A year ago I published a piece called The Coming Housing Calamity, which outlined demographic trends that are hurting the US suburban housing market — and are driving demand for cities and transit-oriented neighborhoods.

The article focused on a growing imbalance between the dominant supply of suburban-style single-family housing and the shifting demand toward compact, mixed-use housing that is connected to transit.

In housing, where much of the supply is fixed, demographic and lifestyle preference changes among a portion of the populace can overwhelm the market's capacity to accommodate those changes for extended periods of time.

University of Utah researcher Arthur C. Nelson, who has been remarkably prescient in explaining those trends even prior to the housing crash, has written a report focusing on the Golden State titled The New California Dream: How Demographic and Economic Trends May Shape the Housing Market, published by the Urban Land Institute (pdf download).

Perhaps the most remarkable finding from the report focuses on transit-served neighborhoods. A growing portion of the US population, 47 percent, would like to live in neighborhoods served by public transit. Currently only about 10 percent do now. In California, the number of people who would like to live near transit is much higher — 71 percent. The report notes:

The demand in 2035 for residences located within one-half mile of public transit stations—-called transit-station areas, or TSAs——will exceed the aggregate amount of current supply plus all new residential units built in these metropolitan areas between 2010 and 2035.

California could build nothing more than transit-oriented development in the next quarter century and still not meet demand. "The bottom line is that as many as 9 million households would like the option to live in locations served by public transit, but today only about 1.2 million California households can claim to have it," the report explains.

Another major finding focuses on the supply of conventional-lot single family housing. For California, which tends to have smaller lots, that is defined as anything larger than an eighth of an acre (5,445 square feet). California's oversupply of conventional single-family housing will persist for another generation, the report finds.

Even if no new suburban-style single-family housing is built, there will still be an oversupply of more than two million of these kinds of units in California in 2035.

In percentage terms, the supply-demand imbalance is even more substantial. In California's four largest metropolitan planning areas (MPOs), which include a majority of the state's population, current supply is 84 percent higher than projected demand for conventional single houses in 2035, 23 years from now.

Think about what that means for those who have invested their life's savings in houses in California exurban subdivisions. The report cautions that in favorable locations markets may persist for suburban-style housing — but that won't change the overall picture.

The good news from this report is that the market trends support the goals of greenhouse gas reduction. Policy makers in the state would like to shift much of the new development in favor of compact, mixed-use neighborhoods where people tend to drive less. According to the report:

These long-term market trends represent a directional alignment between the real estate preferences expressed by consumers and the greenhouse gas reduction objectives expressed by the state of California in the form of Senate Bill (SB) 375.1.

There's been much debate recently on California's so-called "War On Suburbia," as anti-smart-growth commentators Wendell Cox and Joel Kotkin have called greenhouse gas reduction targets and smart growth planning. Cox and Kotkin, who have both recently been featured in The Wall Street Journal, argue that smart growth will force people into higher density living arrangements that they don't want.

The New California Dream suggests the opposite. In a host of ways, including single-use zoning, minimum lot sizes, off-street parking mandates, and setback requirements, laws restrict compact, mixed-use neighborhoods. Zoning reform must take place for The New California Dream to come about, the researchers contend.

The question this report does not address is whether and how the land use regulations in the state’s largest metropolitan areas can be restructured to facilitate planning and development processes that would allow absorption of this market demand in TSAs.

Transit-served areas throughout the state take up only about 120 square miles (76,605 acres), or 0.07 percent of California. Most of the demand for new housing could be met by developers voluntarily building in this tiny portion of the state, leaving most of the rest of the suburban and rural character intact — if communities will let this happen. Residents will voluntarily live in well-planned and implemented TSAs, because they provide the transit access and amenities that a growing portion of the populace would like to have.

The only question is whether California is willing to follow through — and that would mean reducing the regulatory burden and breaking down barriers preventing mixed-use, transit-supportive development. That sounds simple, but it is not going to be easy.